Over the past few weeks, both President Trump and Congressional leaders have considered cutting paid benefits and retirement plans for federal employees. This has lead to considerable uncertainty for current employees who are planning to retire in the next few years as well as for younger employees who want to start saving for retirement but aren’t sure if starting now is worth it.

One of the main questions employees ask involves paid benefits and what will happen to funds that have already been contributed and matched.

By knowing what options Congress is considering, you can prepare for any upcoming changes and adjust your finances to ensure a stable retirement.

What Are the Proposed Changes to Retirement Benefits?

According to Federal News Radio, the Congressional Budget Office is currently weighing five proposed plans to reduce federal benefits for employees. The CBO is responsible for calculating the impact each change has so Congress can vote on the best decision possible for the people.

The five proposed plans include:

Employees increasing contribution rates to 4.4% to save the federal government $47 billion between 2018 and 2027.

Lowering pension contribution rates to 0.8%. This gives money back to employees and can help agencies recruit better, even though it costs the government more.

Changing the model to calculate employee pensions from the top three years to the top five. This saves the government $3 billion while reducing overall pension payments to retirees.

Eliminating the pension plan and increasing the government’s Thrift Savings Plan Contribution to 10% while eliminating an employee contribution. This has a similar governmental impact as the first option.

One CBO report says employee recruitment tactics are affected more by salary than by retirement or pension plans. This is why the government is trying to increase employee take-home pay while reducing retirement benefits and saving money.

These plans will be debated during the federal budget review this fall. Lawmakers are looking to reduce government costs without completely eliminating employee benefits.

How Will These Changes Affect Retirees’ Paid Benefits?

Whenever proposed retirement changes are made by the government, the team at MyFedBenefits works with employees who want to retire but aren’t sure how the changes will impact them. Often, these questions refer to paid benefits that they already invested in.

The leading experts are arguing that payments for contributions should be off the table as far as budget cuts go. Employees have been putting money into their FERS accounts for years, and agencies have matched them. There should be no way for the government to legally cut those benefits or even include them in the discussion because they’ve already been paid for.

“Clearly, annuitants should be off the table as far as benefit cuts go, because annuitant benefits have already been fully funded by a combination of employee and agency contributions,” John Grobe writes at FedSmith.

“Essentially – they have already been paid for, so there is no additional cost.”

If you pay off your car, you can’t include car payments as part of your budget even if you’re still riding around in it. Grobe goes so far as to state that if the government moves forward to cut $875 billion from federal employee benefits then it’s essentially robbing its citizens.

Pension Adjustments Could Have a Bigger Impact on Benefits

If paid benefits are left untouched during the budget process, the main option that would have an immediate impact on upcoming retirees would be the adjustment from the three to five year pension rule.

Most employees experience salary increases over the course of their careers. Even if salaries are only adjusted for cost of living and increase by 1-2% each year, it’s highly likely that people earned more now in their current positions than they did three years ago, and even more than five years ago.

Under this proposed change, pension calculations will decrease for future retirees. Once again, the people most at risk are those retiring in the next few years.

Learn How These Changes Will Affect You

Over the next few months, these plans will reach Congress and continue to be tweaked and adjusted until the House and Senate can reach a majority to approve it.

Federal employees will need to follow the results closely to fully understand what updates are enacted and how it affects their upcoming and paid benefits.

While it’s possible to provide general estimates for how these benefits will affect current retirees, employees who plan to retire soon, and future employees, every individual’s financial situation is different. If you’re worried that these budget changes will affect your retirement plans, or just want more information on how they affect your special case, find a benefits specialist who can walk you through your options.

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